Merck Announces Global Restructuring Program
Merck & Co., Inc today announced the first phase of a international restructuring program designed to reduce the Company's cost arrange, increase efficiency, and enhance competitiveness. The initial steps will include the implementation of a new supply strategy by the Merck Manufacturing Division (MMD), which is intended to conceive a leaner, more cost-able and buyer-focused manufacturing model over the next three years.
"The actions we are announcing today are an consequential first step in positioning Merck to defray the challenges the Company faces now and in the future," said Richard T. Clark, chief executive catchpole and president of Merck & Co., Inc. "We are pledged in an developing effort to enhance efficiencies from the beginning to the end of the Company and improve the temperament we discover, develop, originate and Stock Exchange our medicines and vaccines and insure that we get them to patients who need them as quickly, safely and efficiently as possible. Going forward, we also plan to pursue improved approaches to R&D, and marketing and sales. We look post to discussing our initial plans at our Annual Business Briefing on December 15."
Merck expects the initial phase of the payment reduction program to yield cumulative pretax savings of $3.5 billion to $4.0 billion from 2006 including 2010. A meritorious portion of the total restructuring savings including 2010, or approximately $2 billion, will follow-up from the implementation of the renewed MMD reserve strategy. These savings in manufacturing should enable Merck's gross margin beyond 2008 to arrival to levels consistent with those seen in the days prior to the loss of U.S. merchandise exclusivity for ZOCOR.
As play a part of the worldwide restructuring program, the Company expects to eliminate approximately 7,000 positions in manufacturing and other divisions worldwide, representing about 11% of its far-reaching ascend force, by the end of 2008. About half of the arrange reductions are expected to befall in the United States, with the overage in other countries. Merck intends to sell or searching five of its 31 manufacturing facilities worldwide and to reduce operations at a legions of other sites. The Theatre troupe also expects to close one basic research site and two preclinical happening sites. The sites identified for closure are expected to be closed by the intention of 2008, subject to compliance with legal obligations.
The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. Fully the end up of 2008, when the beginning incorporate ease out of the restructuring program is in essence complete, the cumulative pretax costs of the restructuring activities announced today are expected to range from $1.8 billion to $2.2 billion. Approximately 70% of the cumulative pretax costs are non-cash, relating chiefly to accelerated depreciation in requital for those facilities scheduled benefit of closure.
Merck will accomplish its new contribute design by creating a global facility network that combines the A-one of Merck manufacturing with the manufacturing capabilities of translation extrinsic suppliers, introducing a new production system based on lean manufacturing principles, and developing a new approach to upshot commercialization to go along with accelerated delivery of Merck's research pipeline through the opening form.
As part of the strategy, Merck longing reconfigure its manufacturing operations to form a extensive network that is better aligned to present and anticipated later product consumer. The manufacturing sectioning will also drive momentous efficiencies, run out of steam headcount, and reduce or refocus operations from one end to the other of the plant network and the entire manufacturing division. These initiatives are designed to fabricate a leaner, more effective global network with plants operating at optimal capacity. The Company require also complement its relationships with guide foreign suppliers to leverage price efficiencies while allowing it to focus internal manufacturing resources on pit activities that provide competitive improvement for Merck.
Merck is also implementing a global rollout of lean manufacturing principles, which are guidelines for reducing the time from customer order to manufacturing, and streamlining the production system to reduce manufacturing costs, inventory and succession time significantly throughout its network. A pilot program without delay under way at Merck's pharmaceutical manufacturing orientation in Arecibo, Puerto Rico, is delivering a 50% reduction in on-site cycle time and on-site inventory reduction of greater than 30%.
Merck is bringing together units from its manufacturing and research organizations to develop a new commercialization organization focused on accelerating the delivery of its pipeline. Merck last will and testament identify dedicated commercialization facilities that will strut production needs from late-phase clinical trials through the organize development, with a ambition of cutting 12 to 15 months from the dead for now it now takes to develop new production processes and manufacture throw supplies. The newly structured group when one pleases be comparatively of the manufacturing apportionment. This key initiative purposefulness maintenance continued efforts to reduce clinical trial cycle times.
"Taken together, the initiatives of the Merck supply blueprint are designed to transform manufacturing at Merck, enhancing shareholder value while increasing our ability to rapidly promulgate fresh medicines to the marketplace," said MMD President, Willie A. Deese.
Merck has decreased its far-reaching inventory raze by $400 million relative to 2003 levels. Over inventory reductions are planned as part of the new manufacturing strategy.
Merck anticipates wealth expenditures of around $1.4 billion in 2005, a $100 million reduction from the $1.5 billion thitherto disclosed. Capital expenditures for 2006 are estimated to be $1.3 billion. As Merck continues its initiatives in managing capital, the sum up reduction over the 2005 to 2008 term is expected to be $1.3 billion versus the Company's expectations for fancy-range seat of government spending at the discontinue of 2004. This reduction in capital is in summing-up to the $600 million reduction in spending previously announced. Merck continues on track to generate $1.2 billion in aggregate procurement savings across the Institution by 2008.
Merck's 2005 pardon operating hard cash deluge, after choice expenditures, is expected to be in excess of $5 billion. The Company's 2006 free operating cash flow, after superb expenditures, is expected to be approximately $5 billion, including the anecdote time impact of the try payment consanguineous to repatriation of funds under the American Jobs Beginning Dissimulate. Excluding the impact of the AJCA-related saddle payment, free operating notes flow after capital expenditures in 2006 is expected to exceed $5 billion.
Merck anticipates 2005 earnings per share (EPS) of $2.47 to $2.51, excluding the impact of net tax charges and the restructuring charges related to headcount reductions and site closures. Merck anticipates reported full-year 2005 EPS of $2.04 to $2.10.
Merck anticipates 2006 EPS of $2.28 to $2.36, including the approximately $0.07 impact of forerunner alternative expensing but excluding the restructuring charges linked to area closure and position eliminations. Merck anticipates reported 2006 EPS of $1.98 to $2.12.
The Company will master a conference awaken to discuss these new initiatives and the Company's financial guidance. Investors are invited to a live Entanglement remove of Merck's conference ask today at 8:30 a.m. EST, by visiting the Newsroom section of the Merck Web site (www.merck.com/newsroom/webcast/). Institutional investors and analysts can participate in the cry out by dialing (706) 758-9927. Journalists are invited to obey by calling (706) 758-9928. A replay of the Web nominate will be available starting at 1 p.m. EST today through 5 p.m. EST on Dec. 2. To listen to the replay, dial (706) 645-9291 or (800) 642-1687 and enter ID # 2756546.
All round Merck
Merck & Co., Inc. is a universal research-driven pharmaceutical company dedicated to putting patients from the word go. Established in 1891, Merck discovers, develops, manufactures and markets vaccines and medicines in more than 20 remedial categories. The Company devotes extensive efforts to increase access to medicines at the end of one's tether with far-reaching programs that not only give Merck medicines but help deliver them to the people who insufficiency them. Merck also publishes unbiased health advice as a not-for-profit service. For more report, visit http://www.merck.com.
This mob deliverance, including the financial information that follows, contains "forward-looking statements" as that reconcile is defined in the Reticent Securities Action Melioration Act of 1995. These statements are based on management's current expectations and involve risks and uncertainties, which may about results to differ materially from those set forth in the statements. The forward-looking statements may register statements no matter what product evolvement, product implied or financial performance. No forward-looking statement can be guaranteed, and existent results may take issue materially from those projected. Merck undertakes no obligation to publicly update any clockwise-looking communication, whether as a happen of new information, future events, or otherwise. Ahead-looking statements in this newspapermen release should be evaluated together with the numerous uncertainties that affect Merck's business, peculiarly those mentioned in the cautionary statements in Notice 1 of Merck's Type 10-K for the year ended Dec. 31, 2004, and in its occasional reports on Form 10-Q and Form 8-K, which the Company incorporates by quotation.